The $4.95 pizza that shut down 50 Pizza Hut outlets
THE company behind two Rockhampton Pizza Hut stores went into voluntary administration last Friday, leaving 29 staff without a job in the week before Christmas.
Pizza Famiglia Pty Ltd is owned by Scott and Gia Villiers who say they have exhausted all points of negotiation with franchisors, Pizza Pan Group Pty Ltd
Mr Villiers said in June 2014, the former franchisors, US company Yum! announced a value strategy which forced franchisees to sell pizzas at $4.95.
The move, which saw pizzas sold at less than cost price, was intended as a short-term tactic to increase turnover and take market share from rival company Domino's.
Mr Villiers says the tactic went on for more than a year forcing up to 50 of more than 300 stores Australia-wide to close.
"Our contract stipulates the franchisor has the right to set prices, but they take their cut based on turn-over, not profit," he said.
The strategy proved to be a two-fold loss for franchisees; pizzas were being sold at a loss and higher turnover meant increased royalties paid.
In the meantime, wage increases and increases to stock prices were negotiated by the parent company.
Pizza Hut franchisees claim they were moving deeper into debt to the parent company when a class action was heard in the Federal court beginning in July, 2015.
Judgement was handed down, in February this year, in favour of Yum!, which then sold the master franchisee licence and the debt to Pizza Pan Group Pty Ltd, consisting of three former McDonald's executives, backed by private equity fund manager Allegro.
Mr Villiers said the Federal Court judgement acknowledged the Value Strategy had caused franchisees loss and damage.
"Justice Bennett questioned the business judgement of Yum!, with the benefit of hindsight, but ultimately found in its favour," he said.
"The judgement is under appeal provided franchisees can raise $225,000 as security for Yum!'s costs."
Scott and Gia Villiers owed more than $200,000 in fees to head office. They've currently lost more than $1.4 million, which they hope to recover from Yum! if the appeal is successful.
All staff in both Rockhampton stores have been paid along with all invoices from local suppliers that were submitted prior to administration.
"We're not hiding; we're doing the right thing, but we've been backed into a corner with nowhere to go," Mr Villiers said.
Before the sale, the Villiers' had negotiated with Yum! to avoid being closed down and recoup the value of their business.
Their two Rockhampton stores were trading profitably, except for the debt when Pizza Pan took the helm on September 6.
"We'd lost our life savings keeping the business afloat and we were looking for a fresh start with the new owners," Mr Villiers said.
"We were committed to trade and to our staff and asked Pizza Pan to please work with us.
"We asked for a grace period to free up cash for a local marketing campaign, to boost sales over summer to help repay debt."
But Pizza Pan Group told the Villiers it was either pay the fees or terminate the contract.
Mr Villiers claims the company demanded they fire two senior managers and that he and his wife both leave paid employment to work seven days a week in exchange for a three-month extension.
"It wasn't practical and not fair on the managers," Mr Villiers said.
"It didn't make financial sense and the physical and mental toll of working full-time, seven days a week was too high.
"We asked to trade until January 17 so no staff would be laid off before Christmas and to allow for the summer marketing campaign.
"But they refused and told us that termination would be effective from midnight on December 17."
On Friday, the Villiers' paid their staff and local suppliers in full, closed the doors and handed over to the administrators.
Gia Villiers says she's devastated.
"It's nothing but corporate greed. Our staff were like family. We helped them apply for university courses, we gave them driving lessons...now they're out of work, days before Christmas."
In an interview with Quick Service Restaurants media on September 6, a Pizza Pan Group executive said one of the first priorities would be to meet with franchisees as quickly as possible, to develop close and effective working relationships...
"Taking a collaborative approach is critical and we look forward to creating a strong brand with better opportunities for all of our franchisees and to help them continue to grow in a well-supported environment," she said.
A company spokesman told The Morning Bulletin Pizza Hut is temporarily closing its Rockhampton stores and former staff will be re-offered their positions when the stores reopen in the near future.
The appeal in the Federal Court is expected to take place in May, 2017.
Note: The voluntary administrator is Bob Jacobs from Auxilium Partners.